If you have undertaken work (either in-house or for a client) which involves you creating new products, new processes, new knowledge, new devices or new services (or developing existing ones) then you may be eligible to claim R&D tax credits.
This generous government incentive provides support to all risk-taking companies who use science or technology to overcome a limitation or problem.
The benefit can be received in multiple ways depending upon your tax position; either via an enhanced Corporation Tax reduction, payable credit or increases in losses available.
And, what’s more, you can still claim even if your project was unsuccessful.
So, what type of work is eligible for R&D?
To qualify for R&D relief, your project must seek to make an advance in a particular field of science or technology.
This doesn’t necessarily mean you need to be re-inventing the wheel, but you should be able to demonstrate that you faced scientific/technological obstacles, limitations and uncertainty that could not be easily resolved.
Tectona Tip: R&D can be improving existing products, processes, services and devices (or building on existing knowledge); your work needn’t necessarily have developed a solution from scratch.
As part of your R&D claim, you should be able to clearly demonstrate:
- The advance in science or technology that you were seeking (this includes a description of the knowledge/capabilities that already existed to help in your solution)
- The obstacles, limitations, restrictions, challenges, and uncertainties that you faced in the project
- The process and activities you undertook in attempting to create a solution
Proving that a competent professional (someone with relevant expertise and skills in your field) could not easily solve the problem that your advance seeks to address helps illustrate the inherent difficulties and uncertainties involved.
Types of R&D credit
The types of credit you can apply for depend both on the size of your business and whether the project has been subcontracted to you.
- SME (Small and Medium-sized Enterprises) R&D Relief
- R&D Expenditure Credit (RDEC)
- SME relief
You can claim SME R&D relief if you’re an SME with fewer than 500 staff and a turnover of under 100 million euros (or balance sheet totalling under 86 million euros).
You may have to factor in linked companies and partnerships when working out if you’re an SME.
SME R&D relief can currently give you up to 33p back for every £1 invested in qualifying R&D spend. The incentive allows you to deduct a further 130% of qualifying costs from your yearly profit, as well as the normal 100% deduction (a total deduction of 230%).
And if you company is loss-making, you can claim a tax credit worth up to 14.5% of the surrenderable loss.
Note: Things are changing. For expenditure after 1st April 2023, proposed changes to the SME incentive means the deduction rate will be decreased from 130% to 86%. The rate which can be claimed for surrenderable loses will reduce from 14.5% to 10%.
Tectona Tip: You can claim the credits retrospectively up to 2 years (based on your accounting periods), so any R&D expenditure already incurred during this time can still be claimed at the more generous rate. Get your claims in sooner rather than later!
- R&D Expenditure Credit (RDEC)
This replaces the former relief available under the large company scheme. Large firms can claim R&D Expenditure Credit for working on R&D projects, but this credit can also be claimed by SMEs (and large companies) who have been contracted to do the R&D work by another big company.
RDEC is a tax credit worth 11p for every £1 spent on qualifying expenditure. From April 2023, the proposed rate change will increase even further up to 17p for every £1 spent.
Making the most of your claim
In November 2022, the government announced a tougher stance on those over-claiming R&D tax credits in order to crack down on those abusing the incentive. It has never been more important for business to receive robust and accurate advice.
R&D is a form of self-assessment.
Tectona Tip: You do not need to work with an R&D tax adviser to submit a claim; but doing so can hugely increase the robustness of your submission and ensure you are getting the full amount you are entitled to.
R&D claim preparation is a technically demanding process and having the right adviser is key in helping you quantify, support and maximise your R&D claims.
Update Sept 23: Especially as we now know there are 2 key process changes to be aware of. The first is the requirement to provide advance notification of your claim. The second is completion of an Additional Information Form. Talk to your specialist for more details.
R&D tax relief could be the rocket fuel your business needs.
It is so important to get your R&D claim right that we at Tectona will not submit claims for you. We would, I think, be dabbling as we don’t do this stuff every day.
We see the best support that we can give our clients in this area is to introduce them to someone we know will deliver. We have partnered with Kene Partners who have the right team and the right expertise to deliver the right solution, on time, every time.
Kene Partners’ advisers have the technical knowledge, expertise and key relationships with HMRC to make sure you receive the full amount of benefit you are entitled to.
Tectona Partnership helps business owners sleep at night by embedding one of our 17 commercially minded finance directors in your management team.
Very often, a part time solution is the most effective solution.
We make sure you have the necessary management information and strategic insight to make informed decisions and reduce risk; and we will absolutely tell you what you need to know, when you need to know it.